Annual Report 

Our Strength and Unwavering Financial Stability are Rooted in Our Well-Made Decisions

Since mid-2008, the dramatic news of the economy’s instability has shaken the nation as a whole. While newscasts carried stories about the effects on institutions and markets, most Americans felt the impact within their homes. The nation talked of “weathering the storm” — a storm worse than any since the 1930s.

We can tell you quite plainly that Northwestern Mutual withstood this storm.

• Our philosophy requires us to stand always prepared for troubled times.
  
  
• Our business model performs well in good times and bad, despite upheavals such as the Civil and World Wars and the Great Depression. We have paid dividends every year since 1872.
  
  
• We are proud that today our financial strength remains solid.

We have never cracked under economic pressure. In fact, we plan for such times.

No matter the economic climate, we focus on remaining consistently strong. In an unstable world, you can rest assured knowing that the responsibility you have entrusted to us is honored. Our results remain stable, protecting you against risk.

The results speak for themselves. In these extraordinary times, we provided industry-leading value. Northwestern Mutual maintained the highest available ratings for insurance financial strength from all four major rating agencies. Our brand of financial security is about giving people confidence in their future.

This year, our clients — your fellow policyowners — speak for us. They talk about how the way we do business brings a feeling of security to people’s lives in trying times. Five clients report their experiences over the last year or so. They confirm that they, too, have made good decisions. The work they do with their financial representatives has helped them weather the storm and continue on the path to financial security. They feel on the right track at a time when so many Americans have worried about where they are headed.

Good Decisions, Always

Last year’s struggling economy and financial markets badly jostled families and businesses, and I’m pleased to assure you Northwestern Mutual came through this environment in very good shape.

Most people were relieved to see 2009 come to an end. However, Northwestern Mutual will look back at 2009 as the year that provided ample evidence of how we thrive during tough times. Over the year, we strengthened our financial position, boosted our commitment to our policyowners, and reinforced the value of financial security by increasing our reach.

Our surplus position confirms our considerable financial strength. At the end of the year, total surplus reached $14.2 billion, an increase of more than $800 million over 2008. Our commitment to our policyowners was evident in our expected dividend payout of more than $4.7 billion — our second largest payout ever — representing an almost $200 million increase over the previous year.

Certainly, there are some performance measures we’re keeping an eye on. Total insurance premium and net investment income were down slightly. However, we see signs of improvement. The number of insurance policies we sold increased 6% last year, indicating the strong and growing need for financial security and the trust people place in Northwestern Mutual as a financial partner.

Finally, I want to personally thank you — our 3.3 million policyowners — for the privilege of serving you over the course of my 40-year career with Northwestern Mutual. I plan to retire later this year and am grateful for the opportunity to lead this outstanding company over the past decade. John Schlifske, who has been with our company for more than 20 years and who shares my devotion to excellence, is slated to take over as CEO. You can count on John to carry on our 153-year tradition of exceptional quality on your behalf.

Edward J. Zore
Chairman and Chief Executive Officer

What Clients Say

Read client comments and watch brief video interviews. This year, clients talk about how their work with their financial representative and their trust in Northwestern Mutual helped them weather the economic storm of 2009.

Watch Video of Pam & Clark McGhee — Starting a business in an unstable economy

When Clark’s employer went under last year, the McGhees felt secure enough for Clark to seize a life-long dream: to start his own business. The couple feels that their work with Wealth Management Advisor Jeff Miller helped them take this step.

Watch Video of Gregory Johnson — A family copes without mom

Last year, Greg lost his wife at age 37. Now he’s raising his two young daughters alone. Greg credits Financial Representative Kevin Chadwick’s advice with saving the family from financial devastation and providing opportunities to start anew.

Watch Video of Sharon Grayden & Steve Bayne — Close to retirement in unstable times

Steve and Sharon have definite dreams for retirement, and they have worked hard with Wealth Management Advisor Delynn Alexander to help make their dreams come true. While the couple has been affected by the economic downturn, their plans are intact and on schedule.

Watch Video of Adelaide Daniels Key — Managing money for the family and helping others

Adelaide is a grandmother and active philanthropist. Learn how her work with Wealth Management Advisor Don Reed and Financial Representative Charlie Reed has enabled Adelaide to take care of her family and help the people of western North Carolina.

Watch Video of Jill & Brian Koch  — Just starting out and beginning to secure their future

Jill and Brian say that they were “a plain canvas” when they met Financial Representative Darling Lie-Nielsen. Today, they feel secure in their financial decisions. The couple is working hard and doing the right things, so they can rest easy.

Strength and Security

Northwestern Mutual’s basic financial goal remains the same in any economic environment: to pay a level of dividends that delivers the highest product value to policyowners without compromising the company’s superior financial strength and stability.

As the economic and financial market turmoil carried over into 2009, the strength and stability of financial institutions were again put to the test. Northwestern Mutual met these challenges by remaining true to our time-tested strategy through:

• prudent management of insurance product risk.
• careful attention to operating expenses.
• a well-balanced, diversified general account investment portfolio.

These fundamental priorities, along with our commitment to mutuality and the financial flexibility of our participating dividends, enable the company to weather even extreme financial stress — and deliver on our commitment to long-term financial security for our policyowners and clients.

As a mutual company, Northwestern Mutual is managed for the long-term benefit of our policyowners. This mutual perspective requires a balance between participating dividends and long-term financial strength and security. Participating dividends reflect our underlying claims experience, expense structure and investment performance. In total, dividends to policyowners are estimated to be more than $4.7 billion in 2010 — and are expected to be the second-highest payout of dividends in company history.

View in detail our 2009 financial results.

2009 Policyowners' Examining Committee Report

We were pleased to serve as members of the 2009 Policyowners’ Examining Committee, an independent group representing nearly 3.5 million clients of Northwestern Mutual. In place since 1907, this unique committee structure reflects Northwestern Mutual’s heritage as The Policyowners’ Company. In conducting our work, we interacted with senior management, emerging leaders, and field representatives. We also spent considerable time with Chairman and Chief Executive Officer Ed Zore and new President John Schlifske. This report summarizes our observations and recommendations.

2009 Examining Committee Members

Marna P. Borgstrom, President and Chief Executive Officer, Yale-New Haven Hospital and Yale-New Haven Health System, New Haven, Connecticut.

P. Russell Hardin, President, Robert W. Woodruff Foundation, Joseph B. Whitehead Foundation, Lettie Pate Evans Foundation and Lettie Pate Whitehead Foundation, Atlanta, Georgia.

Eric T. Token, Senior Vice President, Sales, Marketing and Operations, Rose International, St. Louis, Missouri.

Michael D. Hayford (chair), Executive Vice President and Chief Financial Officer, FIS, Jacksonville, Florida.

Many of us know Northwestern Mutual as the preeminent life insurance company. But more and more, Northwestern Mutual’s clients turn to their financial representatives to provide expert guidance and the Company’s full range of insurance and investment products to meet their financial security goals. We believe the Company is uniquely poised to capitalize on this opportunity and differentiate itself in the marketplace with its financial strength, human capital, integrated financial security strategy and its exclusive distribution system.

Financial Strength
Mutuality, which allows the Company to take a long-term view, served the policyowners well during a period of great economic turmoil. Throughout the financial crisis that began in the fall of 2008, the Company performed admirably and today holds an unmatched position of financial strength in its industry.

Several factors contributed to the Company’s resilience, including conservative underwriting guidelines, sound investment practices and disciplined expense management. These factors, together with a top-notch sales force and an impressive policy renewal rate of 96%, contributed to the Company earning the highest available ratings for insurance financial strength from all four major rating agencies. Northwestern Mutual’s enviable financial position made it possible for the Company to announce a 2010 dividend payout of $4.7 billion, the second largest in the Company’s history, despite the turbulent financial markets. We applaud management for its long-term investment discipline and encourage the Company to continue its commitment to cost control.

Human Capital
Because Northwestern Mutual primarily promotes its leaders from within, leadership development in both the home office and the network offices is a vital component of the Company’s future growth. We encourage the Company to support local network offices by investing in front-line management teams and identifying future leaders. At the home office, management has acknowledged that operating efficiencies and leadership development can be supported by performance-based compensation practices. To enhance its competitiveness, the Company must continue to build a performance culture that aligns compensation and other forms of recognition with individual and Company-wide achievements.

Integrated Financial Security
We are impressed by Northwestern Mutual’s ongoing evolution from an insurance company to a provider of diversified financial products and services. Today, the Company offers a spectrum of insurance and investment products designed to provide clients with a foundation of risk management that allows them to save for the future with confidence and to build, preserve and distribute their wealth during their lifetime and beyond. The integration of the Company’s product lines is evidenced by the reorganization of insurance and investment products areas under common leadership.

We find it ironic that a firm of Northwestern Mutual’s quality is not more widely known. As a company with the highest available insurance financial strength ratings and an unsurpassed reputation, the Company should capitalize on its unique opportunity to increase market share, recruit top talent and grow brand recognition. The Company’s new marketing campaign emphasizes its strength and consistency and is evolving Northwestern Mutual from its identity as the Quiet Company. We encourage the Company to be more intentional about communicating the integrated financial security message internally and externally. The current economic environment offers opportunity for the Company to distinguish itself and build market share. We encourage the Company to take advantage of this opportunity.

We note that the current regulatory climate could impact Northwestern Mutual’s business model and financials. We are encouraged by the thoughtfulness and depth of the enterprise risk assessment, scenario planning and risk mitigation efforts. We feel that management is taking appropriate steps to monitor legislative developments and plan for adverse impacts.

Distribution
Northwestern Mutual’s exclusive distribution system of network offices and financial representatives is recognized as a competitive advantage in the industry. The Company is executing its well-defined strategy for growth, including the expansion of the number of financial representatives and a focus on skill development and retention. Progress is evidenced by several initiatives, including a new contract to stimulate field force growth, an incentive program to help new financial representatives establish strong practices, added resources in network offices to support new representatives and continued emphasis on the Company’s award-winning college internship program.

We encourage the Company to continue to partner with field management to build out their financial representative footprint. This is an appropriate investment designed to benefit policyowners in the long run. The Company should continue to hold field management accountable for results. As capacity builds in the field force, we encourage the Company to leverage this capacity to expand in underserved markets.

Conclusion
In this time of economic uncertainty, the experience and conviction of Northwestern Mutual’s leadership team is one of its greatest assets. During his tenure, Ed Zore has led the Company’s evolution from a life insurance provider to a business that helps meet the overall financial security needs of people like us. He has done so while holding firm to the founding principle of mutuality and our best interests as policyowners. We applaud Ed, John Schlifske and the entire senior management team on a smooth leadership transition. John’s experience and knowledge of the Company, together with his evident passion and vision for the future, leave us confident about Northwestern Mutual’s continued success.